First there was the plan: the decision by IGM Financial Inc., the country’s largest independent asset manager, to reduce management fees at its Investors Group division by five basis points to 40 basis points on two-thirds of its funds effective in early July.

The move will affect about two-thirds of the $60.6-billion in assets that Investors Group manages. And there’s the promise of additional “investment solutions” for its clients with household balances of more than $500,000 — the first time that group has been given such a break.

Now comes the reaction to the highly unusual move: While the fee reduction represents some small good news for Investors Group clients, it hasn’t been viewed as positive for IGM’s shareholders. Of seven analysts who have updated their one-year price targets for IGM stock, six have lowered them, according to Bloomberg. Scott Chan, an analyst with Canaccord Financial, was the exception: he kept his target at $50. But Mr. Chan will update his model at month end when IGM reports its monthly assets under management. In a note Monday, he termed the changes “potentially negative.”

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Among other analysts, Doug Young (TD Newcrest) cut his target for IGM by $3 to $45, as did John Reucassel (BMO Capital Markets); Geoffrey Kwan (RBC Capital Markets) cut by $3 to $48; Paul Holden (CIBC World Markets) made a $3 cut to $47; Shubha Rahman Khan (National Bank Financial) cut by $2 to $49; and Phil Hardie (Scotia Capital) by $1 to $49.

CIBC’s Mr. Holden said the management fee cut will likely lead to corresponding cuts in earnings per share for 2012 and 2013 by 4% (to $3.14 a share) and 7% (to $3.28 a share) respectively.

“IGM was an outlier in terms of MERs and the fee reduction will bring it back within a competitive range, albeit at the higher end. We view this as a necessary move to stay relevant in an increasingly competitive industry. Lower fees should help sales, but we will wait to see by how much,” wrote Mr. Holden.

But the “necessary strategic move” comes with “material short-term earnings consequences.” And wary of the competition IGM faces, Mr. Holden said the fee cut “is by no way a move to make Investors Group a value brand, but rather a move to keep the brand relevant in an environment where investors are becoming more knowledgeable and more cost aware.”

Mr. Holden estimates IGM’s “net sales will need to improve by roughly $900-million per year for each of the next 10 years to fully offset the hit to earnings. Clearly, this decision was made with the long term in mind.” Over the past decade, IGM’s net sales have averaged $479-million.
Accordingly, annual net sales of $900-million is a big ask. “It is not a small number, and will require more gross sales per consultant, renewed growth in the number of consultants and an even lower redemption rate,” wrote Mr. Holden, arguing because of “uncertainty related to the impact on earnings,” dividend increases are unlikely until 2014.

IGM said in a conference call it expects all the changes and the follow-on effects to lead to increased sales and increased asset growth. It termed the changes a “natural pattern,” a move to make it “a bit more competitive on the price side,” with the new pricing moving the firm to “the middle of the pack.” IGM said the fee cuts will lead to an immediate revenue impact — with the gains, if any, occurring, over time.

This story was updated on Wednesday, May 23 at 8:24 a.m. to correct the name of the company which reduced management fees, as well as the amount of assets the company manages.